Business Interruption test case - FCA seek policyholder and broker input


Business interruption insurance during the coronavirus pandemic - High Court test case

On the 1st May 2020 the FCA announced that that it woud be obtaining a court declaration to resolve business interruption uncertainty relating to the Coronavirus pandemic.

On Friday 15th May the FCA issued a statement setting out how they will be engaging with policyholders and insurance intermediaries on business interruption (BI) insurance:


The coronavirus (Covid-19) pandemic and the Government controls imposed as a result are causing a substantial level of loss and distress for businesses, in particular for SMEs. A large number of claims are being made to insurers under the terms of business interruption (BI) insurance policies.

There is continuing and widespread concern about the lack of a positive response of some of those BI insurance policies, and the basis on which some insurers are making decisions in relation to claims.

On 1st May 2020, the Financial Conduct Authority (FCA) released a statement that we intend to obtain court declarations aimed at resolving contractual uncertainty in selected BI insurance policies. Acting in the public interest, the FCA will put forward policyholders’ arguments to their best advantage. We are aiming to obtain legal guidance in this way more quickly and at a lower cost to policyholders than would be the case if they took their own court actions.

The FCA recognises that many claims will already be the subject of negotiation or other dispute resolution processes. This proposed action is not intended to impact this normal claims process. It is designed to assist policyholders, and particularly SMEs, whose claims are being refused when they think the firm should respond.

The intended action will not prevent individuals from pursuing issues through negotiated settlement, arbitration, court proceedings as a private party, or taking eligible complaints to the Financial Ombudsman Service.

The result of the test case will be legally binding on the insurers that are parties to the test case in respect of the representative sample considered. It will also provide persuasive guidance for the interpretation of similar policy wordings and claims, that can be taken into account in other court cases, by the Financial Ombudsman Service and by the FCA in looking at whether insurers are handling claims fairly.

We wish to ensure that policyholders and insurance intermediaries are properly engaged throughout this process.

Invitation to policyholders and insurance intermediaries to provide information

The coronavirus pandemic will have affected policyholders in different ways. The issues relevant to the intended proceedings will therefore be wide-ranging and complex. We recognise that the intended proceedings will better achieve our consumer protection and market integrity objectives if they cover as broad a cross section of policies and issues as is compatible with an expedited court process. We are reviewing extensive material provided by insurers to do this.

At this stage, we are inviting policyholders and insurance intermediaries who are aware of unresolved disputes with insurers over the terms of BI policies to engage with us, if they want us to take their concerns into account as part of the test case.

The FCA’s legal team

We have instructed Herbert Smith Freehills, a leading law firm with a highly regarded practice representing policyholders. The team at Herbert Smith Freehills is led by Paul Lewis.

We have also instructed an external team of leading counsel highly experienced in insurance issues.